Scottish Court of Session Decisions

This was chiefly a case of accounting, and the facts sufficiently appear in the opinions of the Judges.

Lord Cowan—These conjoined processes have certainly run a very long and involved course of litigation. They were brought into Court in 1849 or 1850, and ever since I had the honour of sitting here they have been occasionally cropping up and raising questions of more or less difficulty and nicety, and involving matters of considerable moment. In the competition the case has been twice in the House of Lords, about 1853 or 1855 and afterwards in 1865. Under the judgments of this Court and of the House of Lords, the questions in the competition have been finally decided; and the parties, who appear in this discussion as objectors, have been finally preferred as entitled to the fund in medio, whatever that may be. Upon the case coming back from the House of Lords, with that determination as to the competition, the record regarding the fund in medio was prepared and finally closed; and a judgment pronounced by Lord Kinloch as Ordinary in 1866, and affirmed by the interlocutor of the Inner-House, prepared the case for a renewed remit to an accountant. The original remit had been to Mr Barstow, and under that remit the questions in the competition had been thoroughly expiscated; but not so as regards the matters relating to the amount of the fund in medio. Accordingly, under this second remit to Mr Scott, we have before us a very clear and elaborate report. Objections have been stated by the parties respectively, as was to have been expected in a litigation of this kind; and we have now two interlocutors of Lord Mure brought under review. The first of these disposes of questions of principle which were involved in the objections; it is dated 13th December 1870. And we have the final interlocutor ordering consignation. Both interlocutors will require to be considered in finally disposing of the cause. Meanwhile questions of principle, involved in the objections stated by the parties, are to be disposed of; and as regards them I shall trouble your Lordships with some explanation of the grounds on which I have formed the opinion I shall immediately mention.

It will simplify the consideration of the various questions that have been argued, to bear in mind that the late Mr Smith has to account for his intromissions in a twofold capacity.

Under the will of Dr Pursell, who died in 1835, he became sole surviving trustee; and as such he must account for all his intromissions with the trust-estate to the parties interested therein, according to their several rights and interests, whether as creditors or gratuitous legatees. But farther, as Dr Pursell had intromitted with the estate of his uncle James Warroch, who died in 1814, under the trust-disposition in his favour, and the funds of that estate remained to be accounted for to the beneficiaries at the death of Dr Pursell,—it is incumbent on Mr Smith, as his trustee and representative, to account for the funds of that estate to those beneficiaries.

The interlocutors in 1866 by the Lord Ordinary, of date 16th February, and by the Inner-House to some extent varying its terms, on 3d July, determine so far the principles applicable to Mr Smith's obligations to account for the two estates. With regard to the accounting for the trust-funds and estate of Dr Pursell, the Lord Ordinary pronounced certain findings, but these were recalled by the Inner-House in hoc statu; and as to this part of the case no interlocutor has yet been pronounced, except that by the Lord Ordinary now under review, in disposing of objections to the accountant Mr Scott's report.

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Upon the other branch of the accounting, viz., that which regards the funds and estate of James Warroch, the interlocutors referred to in 1866 have fixed important principles from which the Court cannot now depart. By the first finding in the interlocutor of February 1866 the Lord Ordinary found that Mr Smith was bound to account “for the estate and effects of the deceased James Warroch intromitted with by him,” to the parties preferred thereto by the judgments in the competition. But this interlocutor was so far altered by the Inner-House,—it having been declared that the words “estate and effects of James Warroch,” are to be understood as comprehending “only funds, properties, and investments, which were separate, or which were or ought to have been known to the raisers (Mr Smith and his co-trustee) to be separable from the estate of Dr Pursell.” Other findings (the second and third) had regard to the credit which the trustees were entitled to take for payments made by them to Mrs Gowans in respect of her supposed rights and interest under James Warroch's disposition and settlement; and these findings were adhered to by the Inner-House, “but under reservation of all questions which may be raised under the Thelluson Act.”

The remit to Mr Scott, under which his elaborate report now before the Court has been lodged in process, and in reference to which the interlocutors of the Lord Ordinary disposing of the objections referred to were pronounced,—was made with the view of applying the principles thus fixed to the details of the accounting on both branches.

1. The claims against Mr Smith by the beneficiaries entitled to James Warroch's estate under the interlocutors of 1866, is for his direct and personal intromissions with the funds thereof, really without a title, although nominally in his character of trustee on Dr Pursell's estate. In so far as he became aware at Dr Pursell's death that there were funds that belonged to James Warroch's estate, it was Mr Smith's duty to have preserved them separate from the proper estate of Dr Pursell; and when he dealt with such funds on the footing of their being parts of Dr Pursell's estate, he was guilty of a legal wrong, of which the beneficiaries of James Warroch's estate had just cause to complain, and for which they were entitled to demand, and are now entitled to claim, redress. Hence the investigation by the accountant, under which he brings out the three sums of £2032, 15s., £3999, 11s. 2d., and £3620, 6s. 7d., to be chargeable against Mr Smith, for the reasons stated by him on pages 24 to 29 of his report, as estate and funds of James Warroch which must be made forthcoming.

As regards the sums of £2032, 15s. and £3999, 11s. 2d., I concur with the Lord Ordinary in holding the grounds stated in the report to be satisfactory, and have nothing to add to the exhaustive views therein suggested. As regards the third sum of £3620, 6s. 7d., there is more difficulty. It consists of a balance of accounts between James Warroch's estate and Dr Pursell's, which it required considerable investigation to ascertain correctly. On the one hand, it may be contended that, having regard to the elements for such investigation which existed in the repositories of Dr Pursell on his death,—Dr Pursell's trustees failed in their duty when they did not separate this fund as much as the other two sums, as truly capable of being separated and set aside for the parties interested in James Warroch's estate. But on the other hand, there is room for a distinction between this item of charge and the other two sums. The items of charge making up the balance of £3620, 6s. 7d. required to be minutely traced to their origin, for the whole entered the general cash account of Dr Pursell, kept in his own name with his bankers. That the amount constitutes a debt due to Warroch's estate can admit of no doubt; and in the state of the accounting it may be enough for the parties interested in that estate to have it recognised as a debt to be paid out of Dr Pursell's estate. And I consider, on the whole, that this is the safer and better conclusion. But its true character must be fixed. And a debt of this kind cannot be held to fall properly within the words of the Inner House interlocutor of 1866:—“funds, properties, and investments,” which ought to have been known to Dr Pursell's trustees to be “estate and effects of James Warroch.”

These are the leading questions requiring to be disposed of on this branch of the accounting, in so far as regards the funds and estate of James Warroch, with which Mr Smith and his co-trustee were bound to charge themselves as belonging to James Warroch's estate. The fourth sum mentioned by the accountant, viz., £1506, 14s. 11d., it is not disputed, must be stated not as the separate estate of James Warroch, but as estate of Dr Pursell, and to be accounted for by Mr Smith as such; and the fifth sum is to be dealt with on the same footing as was conceded by the counsel at the debate on the report.

The reasoning on which I have arrived at the conclusion now stated is this—The distinction between ancestor's estate and the estate of the heir who succeeds is a well-known distinction in competition of diligence, by the creditor of the one and other, in the law of Scotland. By the Act 1661, the heritable estate of the ancestor is allowed to stand over to pay the ancestor's creditors for a certain period of time; and by the Act 1695 the moveable or personal estate of the ancestor stands over for a twelvemonth, or even for more, so that the ancestor's creditors may make that estate available for the payment of their debts. But, as Mr Bell very clearly brings out, the estate belonging to the ancestor must be clearly identified and distinguishable from the estate of the heir himself, or of the executor. Upon that principle, it seems to me impossible to say that a balance that is brought out simply of debt, in the way that this balance is brought out, by means of tracing certain sums into the account of Dr Pursell as originating in sums that belonged to the estate of James Warroch, can ever be held to be that separate estate or separate investment which the Court intended to designate as a fund which James Warroch's beneficiaries were entitled to claim. What the Court held was, that where an estate which was James Warroch's, whether heritable or moveable, was found, at the time of Dr Pursell's death, clearly separable and distinguishable from the rest of the funds, these beneficiaries might lay their hands upon that; and, as in a vindicatio rei, say, that estate belongs not to Dr Pursell, but to James Warroch's succession.

There remains to be determined the payments made to Mrs Gowans, for which Mr Smith is alleged to be entitled to take credit in this accounting. This matter has been narrowed by the findings in the interlocutors of 1866, in as much as it has been thereby finally determined that such credit can be stated in reference only to payments to her that were necessary and sufficient to

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discharge her claim under James Warroch's trust-settlement; and, in particular, that credit cannot be taken for payments made to her on the footing of her being either liferenter or fiar of the residue of that trust-estate. To this extent no question can be raised, excepting such as fall within the reservation by the Inner House judgment adhering to the Lord Ordinary's finding, viz., “of all questions that may be raised under the Thelluson Act.”

This matter is fully treated of by the Lord Ordinary on page 21 of the appendix to the record. It is there explained, that as regards one-half of the accumulations falling under the Act, and declared to belong to the next of kin of James Warroch, it bad been credited to Mrs Gowans as in right of Euphemia Warroch, and that to this no objection has been made; that as regards the other half, it had fallen in equal shares to Dr Pursell and Mrs Gowans; that the one-fourth which belonged to Dr Pursell ought to be brought to the credit of Mrs Gowans, or of Dr Purnell's estate in the accounting; but as regards the fourth which fell to Mrs Gowans herself, the Lord Ordinary was unable to hold that it ought also to be so credited, seeing that her husband was alive in 1829, and that consequently other parties may have right to claim this fourth. I cannot adopt this conclusion, seeing that the objectors have stated no right to this fund, and that there is no one having right to challenge the payment by Mr Smith to Mrs Gowans, in this process. The more just conclusion appears to be, even in this limited view, that the payment should be allowed to stand in the accounts as well made,—the more especially as it cannot be held with any certainty that the right to the sum so paid did ever vest in the husband.

2. The accounting for Mr Smith's intromissions with Dr Pursell's estate raises questions of principle different from those applicable to the other branch of the accounting. Mr Smith had a good title, in virtue of which he intromitted with this estate; and by the trust-settlement under which he acted it was expressly declared that the trustees should not be liable for omissions or presumed intromissions, but only for actual and personal intromissions; and farther, that the residuary legatees should be bound to accept an account signed by the trustees, as sufficient evidence of their whole intromissions. The nature of the present claim against Mr Smith, as surviving trustee, is, however, not such as to bring this protecting clause into operation. The claim here is for debt due by Dr Pursell's estate, and the creditors in that debt are entitled to have the trust-estate made forthcoming for their payment. The same parties may be the residuary legatees under the trust-settlement of Dr Pursell, but they are not now, or in this branch of the accounting, claiming as such. It is their claim as creditors of the estate, which alone is under discussion.

In answer to such a claim, it is no defence for trustees to say that they have no funds in their hands,—if they actually intromitted with funds of the estate which ought to have been applied primarily in the payment of debt, and have paid them away to others having no preferable right to payment. It may be, that trustees, in favourable and exceptional circumstances, can plead due administration of the estate, by payments made to parties, whose claims on the estate were inherently of a postponed nature to those of creditors whose claims were unknown and who inexcusably have kept aloof. Such is the doctrine of Lord Stair, which was appealed to. The general rule undoubtedly is, that the claims of creditors must first be satisfied before those of legatees, and the trust-deed of Dr Pursell expressly provides primo loco for payment to them.

Now, in this case the trustees made payment to Mrs Gowans, the liferentrix under Dr Pursell's settlement, of the free annual proceeds of his estate while the debts due to the claimants were unsatisfied, and the question is, whether they can found on those payments as exonerating them from liability to the creditors who have been preferred in the competition, in so far as their debts remain unsatisfied out of the separate estate of James Warroch?

The Lord Ordinary ( Kinloch), by the fourth finding of his interlocutor of February 1866, but which was recalled by the Inner-House in hoc statu, found that Mr Smith “is not entitled to take credit for any payments to Mrs Gowans beyond what were necessary and sufficient to discharge the claims competent to her against the said estate of” Dr Pursell or George Warroch, (which became merged in that of Dr Pursell) and have been fixed by prior judgments in the cause; and in the sub-division of the elaborate note annexed to the interlocutor, as to this matter, his Lordship observes that he was not prepared “to draw any distinction between James Warroch's trust-property generally, and the debt due by Dr Pursell to James Warroch's estate in respect of intromissions, for this was like the others simply an asset of the trust-estate, which ought to have been preserved as inviolate as the rest.” This may ultimately be found a correct view of Mr Smith's position; but I believe the Court are not satisfied that it can be affirmed without farther discussion. The position of Mr Smith in his intromissions with the two estates was certainly different, in as much as he intromitted with the one without a title, and with the other under his completed title as trustee. In making the payments which he did to Mrs Gowan, so far as the annual proceeds of Dr Pursell's estate are concerned, the defence of bona fides so powerfully urged by the senior counsel for Mr Smith's representatives arises for consideration now, in a different state of the process from what it did when the Lord Ordinary had the matter before him. The elaborate report of the accountant has now brought forward all the facts bearing on this question. It seems therefore that the right course for the Court to adopt will be to allow parties an opportunity to be heard farther on this important matter, and this more especially as there are other questions of a subordinate character which will require to be debated before the Court can finally decide the whole questions involved in the cause, with a view to a final adjustment of the accounting under a renewed remit to the accountant.

In conclusion, I may observe that the calculations made by the accountant in reference to the commission chargeable by Mr Smith will require readjustment in consequence of the change effected by this judgment upon the accounting in reference to the two estates, and it may also be for consideration how far the rates of interest stated by the accountant should be in all respects adopted by the Court. These are matters, however, which will be for subsequent consideration.

Lord Benholme—I concur in the views of Lord Cowan: and the only point to which I think it necessary to refer is, what should be done with the finding

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as to interim payments? I think we should recal that part of the Lord Ordinary's interlocutor.

Lord Cowan—I meant to have stated that the interlocutor in that respect must either be recalled or modified as to the amount, as your Lordships may consider fit and proper. Undoubtedly as regards commission, there must be a great change made on it.

Lord Neaves—I quite concur in the course proposed to be followed.

Lord Justice-Clerk—In regard to the consignation, it may either be recalled in hoc statu, or, as we are not exhausting the reclaiming note, and not dealing with the whole of this interlocutor, it may remain in the meantime till the Reclaiming Note is entirely disposed of. Upon the general question in the case, I entirely concur in the view that Lord Cowan has stated, and the result will be that we exhaust the judgment of 3d July 1866, and give final effect to the views there laid down in regard to the liability of Mr Smith for James Warroch's estate, the result being that the first two items are found to have been separate or separable, and that therefore Mr Smith is responsible for them and must account for them. Therefore there can be no farther question in regard to personal liability on this head, as far as this Court is concerned. The result of that will be to throw back into Dr Pursell's estate the sum of £3620, the liferent of £1500, and the miscellaneous funds which the Lord Ordinary has also thrown back, which will leave an estate of £5600 subject to the debt of £3620.

The questions that still remain are, the liability of Mr Smith for having paid the life interest of that sum and the capital of it to Mrs Gowans. I should say, however, upon the first branch, that there is one matter to which Lord Cowan has not referred,—I mean the argument, which was very strongly pressed, about the £2000 left by James Warroch out of his own estate to Mrs Gowans. It was maintained that as Mrs Gowans had the right of disposing of the fee of the sum, the factory in favour of Mr Smith might be held to be in exercise of that power, at least to the effect of protecting Mr Smith in the administration of it under the factory. I am very far from saying that there might not be a good deal of force in that argument; but looking to the views expressed in the House of Lords, I don't see how we can give effect to it.

The only thing that remains, therefore, is the accounting upon the footing of this estate of Dr Purnell's, and there will arise, in the first place, the question whether, as Mrs Smith had a good deal to administer, and paid as he says in good faith—whether the payments made to Mr Gowans can be protected on that ground. On that of course I give no opinion. In the view that we have taken, they will not begin to run upon James Warroch's estate till 1839, because the result of Lord Cowan's view with reference to the Thelluson Act is really to make a payment of the whole liferent down to that time a legitimate payment. However, that and the remaining questions in regard to the details of the accounting, will now come up for argument freed entirely of the questions that have hitherto arisen in regard to James Warroch's estate. Therefore our judgment will substantially be to find that these two first sums were separate or separable estate belonging to James Warroch, and that Mr Smith is bound to account for them; and quoad ultra we shall hear the cause further.

The case was again argued, and the Court made avizandum.

At advising—